By Barani Krishnan
Investing.com -- From where oil’s top could go, the conversation has shifted to where the bottom might be.
Oil prices continued their near free-fall for a second straight day, with both U.S. crude and global benchmark Brent tumbling more than 5% on Tuesday to add to Monday’s loss of more than 5%. The drop is even more precipitous compared to the 14-year highs of above $130 a barrel attained by both benchmarks just over a week ago.
U.S. crude’s West Texas Intermediate, or WTI, benchmark was down $5.59, or 5.4%, at $97.45 a barrel by 1:09 PM ET. It earlier fell to $93.56, its lowest since Feb. 25. WTI surged to 2008 highs of $130.50 on March 7 in the aftermath of Russia’s invasion of Ukraine.
London-traded Brent was down $5.74, or 5.4%, at $101.27 a barrel. Earlier, Brent fell to $97.50, also its lowest since Feb. 25. Brent flew to a post-Ukraine invasion high of $139.12 on March 7.
The stunning losses prompted oil broker Tamas Varga at PVM to even ask : “Is it the mother of all corrections or the market is turning increasingly confident that a significant supply shock will be avoided?”
Traders pointed the change in oil’s fortunes at the mediatory efforts being made toward the Russia-Ukraine war, global oil cartel OPEC’s concerns about near-term market conditions and renewed and aggressive Covid-19 measures by China after an unexpected surge in Omicron cases in two of its provinces.
Oil’s plunge is “largely a reflection of just how far they rose since the invasion,” said Craig Erlam, analyst at online trading platform OANDA. “The talks between Ukraine and Russia aren't just lifting market sentiment; they're alleviating some of the worst fears around commodity supply disruptions.
“Further compounding the declines are shutdowns across China which could continue to ramp up as case numbers spike. China is a huge oil consumer so this dent in demand could temporarily ease some of the imbalances in the market.”
Diplomatic activity quickened on multiple fronts on Monday as Russia’s war on Ukraine entered an uncertain new phase, with President Vladimir Putin’s forces widening their bombardment of Kyiv and other cities while hundreds of Ukrainians civilians escaped the devastated port of Mariupol.
China posted a steep jump in daily Covid-19 infections on Tuesday, with new cases more than doubling from a day earlier to hit a two-year high, raising concerns about the rising economic costs of its tough measures to contain the disease. A total of 3,507 domestically transmitted cases with confirmed symptoms were reported across more than a dozen provinces and municipalities, up from 1,337 a day earlier, the National Health Commission said.
On the OPEC front, the 13-member Organization of the Petroleum Exporting Countries, which leads the wider 23-member OPEC+ alliance, said its 2022 forecasts for demand growth, supply growth and global economy “under assessment” due to shifting market conditions. The 13-member cartel said its output rose by 440,000 barrels daily in February, exceeding its pledged increase under the OPEC+ deal.
Adding to oil’s weight was the likelihood of an imminent nuclear deal for Iran.
A U.S. official anonymously commented on Monday that negotiators were “close to the finish line” on a deal that could end nearly four years of sanctions on Tehran’s oil and pave the way for the return of hundreds of thousands of barrels daily to a market starved of supply.
“More significant in the longer term is the Iran nuclear deal which appears to be making progress. Granted, at a snail's pace, but that's better than not at all. It seems sanction complications may be overcome which will move us a step closer to a deal,” said Erlam.